You're feeling really good that you just negotiated a low price on your new car when the salesman ushers you to the finance and insurance office. Be careful. This is where you could give away all the savings you just achieved.
Dec 27, 2018 - Car buyers crave reliability: 95 percent of new- and used-car. Vehicle service contracts, often referred to as extended warranties, are a. How to Select an Extended Warranty for a Used Car Determine what level of coverage, payment structures, and additional benefits best fit your specific needs. Identify the industry’s top providers and compare their offerings to find the best fit. The best extended warranty companies are informative.
The salesman in the F&I office, as it's known, will pitch you on buying an extended warranty at $1,000 or more to cover repair expenses after your new car warranty expires. Just say no.
Any extended warranty won't go into effect until your factory warranty has expired -- usually three years. And the extended warranty won't cover items excluded by your original coverage.
A Consumer Reports survey of its readers showed that 55 percent of people who bought extended warranties never used them. And those who did use them got reimbursed an average of $837 for necessary repairs vs. the average of over $1,200 paid for the extended warranty.
In recent years, regular warranties attached to new cars have improved significantly. In place of the traditional three years or 36,000 miles of bumper-to-bumper coverage, some luxury brands have now extended that to four years or 50,0000 miles.
And many warranties now cover engine, transmission and other powertrain components much longer. General Motors (GM) and Chrysler (FCAU) brands now offer five-year, 100,000-mile powertrain coverage, Ford (F) offers five-year, 60,000-mile coverage, and other companies are in a similar range.
Korean automaker Hyundai, which initially had a poor reputation for reliability, started the competition in the late 1990s by instituting a 10-year, 100,000-mile powertrain warranty. Despite dramatic gains in reliability, Hyundai and its corporate sibling Kia maintain (and advertise) that long warranty.
In addition to resisting the pitch for an extended warranty, you can take the following steps to avoid getting stuck with a budget-busting major car repair bill.
- Pick a reliable brand. Buying a car with a record of low repair frequency means you may not have to use your regular warranty, let alone need an extended warranty. In the most recent Consumer Reports ranking of brands for reliability, Audi, Subaru, Lexus, Porsche and BMW topped the list. Mazda, Buick, Toyota, Kia and Honda rounded out the top 10,
- Plan for maintenance costs. Most basic warranties exclude regular maintenance items such as oil changes, windshield wipers and brakes. So budget for those items, which are almost certain to be needed. Some luxury brands -- including Cadillac, Lincoln, Jaguar and BMW -- now avoid this issue by providing free maintenance for the early years of ownership.
- Put some savings aside for a repair bill that may not be covered. Consumer Reports suggests taking the $1,200 you might have spent on an extended warranty and putting it into an interest-bearing savings account. If a major repair issue occurs after your original warranty is expired, you'll have some cushion toward paying for it.
Used-Car Financing & Warranty FAQs
Financing & Lease
Can you lease a used car?
Most dealers don't offer leasing on used cars, but used cars that were leased when new and are now for sale provide some benefits, such as good condition and low miles.
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Off-Lease Car Glut Might Mean Used-Car Buyer’s MarketHow do I finance a used car?
Using the dealership’s lender is convenient, but it's best to shop around at banks and credit unions ahead of time so you'll know whose rate is best when you're at a dealership. This research may take a few days but can be well worth the time.
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Inside the Finance and Insurance RoomAuto Loan Basics for First-Time Buyers
What You Need to Get a Car Loan
Are loan rates higher for used cars?
Yes, loan rates are higher overall for used versus new cars, but they may be better if the car is factory-certified pre-owned because manufacturers may offer attractive interest rates to promote CPO sales. Before financing with a dealer, bank or credit union, check the national average interest rates for used cars at Bankrate.com.
Related:
Report: Average payments for New, Used Cars RiseHow do I know if I can afford the payments?
You can estimate your payments here using Cars.com’s finance calculators. You should have a down payment of at least 20 percent, financing lasting no longer than four years and a principal, interest and insurance total not exceeding 10 percent of your gross household income.
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Can You Afford Your Car?Warranty
Are extended warranties worth the money?
Extended warranties offer peace of mind, but apart from the coverage included with factory-certified pre-owned cars, additional plans come with a price that studies have shown to be higher than the benefits you can claim in repairs.
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CPO Pros and Cons Versus Extended WarrantyWhat warranty comes with a used car?
Initial warranties are limited by the miles and age of a car, so if the car has higher miles, original warranties may no longer apply. Also note that warranties don't always transfer to subsequent buyers. Check the vehicle manufacturer’s specifications for warranty limits.
Related:
Making Sense of Used-Car WarrantiesWhat is a bumper-to-bumper warranty and what does it cover?
Often called a basic warranty or new-vehicle warranty, a bumper-to-bumper policy covers components such as air conditioning, audio systems, vehicle sensors, fuel systems and major electrical components. Most policies exclude regular maintenance such as fluid top-offs and oil changes, but a growing number of brands have separate free-maintenance provisions. Bumper-to-bumper warranties typically expire faster than powertrain warranties. Terms are typically three years or 36,000 miles, although some have terms as high as six years or 60,000 miles. Check the vehicle manufacturer’s specifications for bumper-to-bumper warranty limits.
Certified Used Cars
What does CPO mean?
A certified pre-owned or CPO car has been inspected to meet minimum quality standards and typically includes some type of warranty. While dealers and third parties certify cars, the gold standard is an automaker-certified vehicle that provides a factory-backed warranty, often extending the original coverage. Vehicles must be in excellent condition and have low miles and wear to be certified, which is why off-lease vehicles feed many CPO programs.
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Tips to Buying a CPO Car